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Tesla stock is a gigantic bubble on the verge of exploding: strategist

Brian Sozzi
·Editor-at-Large
·3-min read

The insane run in Tesla’s stock (TSLA) could be at risk of being short-circuited soon, crushed under the weight of overly inflated expectations and sky high valuation.

“When a stock rises this much, I mean 43% in five or six days, that only happens after a stock crashed. That hasn’t happened [with Tesla]. The stock more than doubled when the big rally came along. Maybe a company can go up 43% if they come up with a COVID-19 vaccine. But stocks like this after they have rallied a lot that’s a bubble. And to me, that tells me people should take at least some profits off the table and be careful about buying the stock at these prices,” said Miller Tabak chief markets strategist Matt Maley on Yahoo Finance’s The First Trade.

To Maley’s point, the move in Tesla this past month appears very bubblicious as Wall Street traders would say. Tesla’s stock is up 58% in the past month, 155% in the last three months and 232% year-to-date, according to Yahoo Finance Premium data. The bulls have fueled the stock on the thesis Tesla will see strong demand out of China while also having reached a level of sustainable profits overall.

The company’s market cap now stands at a mind-boggling $258 billion, despite Tesla’s long history of not being profitable. A week ago, Tesla eclipsed Toyota for the title of the world’s most valuable automakers.

Bottom line is that if Tesla doesn’t deliver in a big way with its second quarter earnings release due out soon, the bulls will likely be pounded into the ground.

In this Sunday, Feb. 2, 2020, photograph, aN unsold 2020 Model X sits at a Tesla dealership in Littleton, Colo. (AP Photo/David Zalubowski)
In this Sunday, Feb. 2, 2020, photograph, aN unsold 2020 Model X sits at a Tesla dealership in Littleton, Colo. (AP Photo/David Zalubowski)

Points out Maley, “We also know that a stock can remain “irrational longer than investors can stay solvent” and thus Tesla could easily rally to the $1,500-$1,600 range before it tops-out. It could even reach the $2,000 target that one analyst put on the stock recently before it rolls over. However, the stock is getting quite ripe for a serious decline, one that will take it down by 30% or more. Again, this can happen even if the company is going to successfully change the world and the stock is eventually going to go to $5,000 over the next five years.”

Long-time Tesla sell-side analyst Adam Jonas is also voicing concern on Tesla’s valuation ahead of earnings.

“We are highly sympathetic to the excitement around a story like Tesla where the market is witnessing true dominance of go-to-market strategy and product strength in one of the world’s largest addressable markets. But at the same time, we believe the stock market has done more than a good enough job discounting the opportunity and, we believe, has not sufficiently discounted the associated risks,” Jonas wrote in a new note to clients on Tuesday.

Jonas reiterated his underweight rating on Tesla’s stock, but lifted the price target to $740 from $640. Tesla’s stock currently trades at nearly $1,400 a share.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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